We had a very quiet day in the energy markets on Thursday, but late-day buying in US stocks lifted oil prices after the NYMEX close. The Dow tacked on 95 points, all mostly in the last two hours, as participants did not seem rattled by the various macro numbers, which on balance, were mostly biased towards the negative side. US March housing starts and building permits numbers, for example, came in slightly worse than expected, ending the string of modest improvements noted in prior readings. On the US employment front, the latest weekly initial claims readings showed claims declining this past week to 53,000 to 610,000 (well below the consensus of 660,000), but continuing claims rose 172,000 to a record 6.022 million. What this means is that the pace of layoffs is slowing, but that it is not getting any easier to find a job. Somewhat more positive, was the April Philadelphia Fed regional economic survey, where the six-month outlook for general business activity rose to 36.2 from 14.5, the fourth consecutive monthly improvement. In addition, the overall index showed a slight deceleration in the contraction evident in the mid-Atlantic states. The report seemed to confirm a similar theme that came out of the Fed’s “Beige Book” survey of economic conditions released Wednesday.
Out of China, it was reported Thursday that the economy grew by 6.1% in Q1, its slowest pace in 10 years. However, markets took the report in stride, as the number was widely expected. Acting somewhat as an offset, the government reported a 30% surge in urban fixed-asset investment in March, and a jump in industrial output, (up 8.3% in March vs. 3.8% seen in the first two months of the year), adding to evidence that the government’s $585 billion stimulus plan is gaining traction. Out of Europe, the news was grimmer, with February industrial production contracting by its greatest amount on record. Output in the Euro region fell 18.4% from a year earlier month after a revised 16% decline in January.
We expect trading ranges in most markets--including energy -- to remain fairly compressed in advance of the Federal Reserve stress test results on the banks, now expected to come out on May 4th. Procedures on releasing information about specific banks, as well as what the government will say about each one, are both still under discussion. Although the goal of the stress-tests is to get a better handle on how banks will fare if the recession intensifies, policy makers have their work cut out for them. For one thing, they must be able to identify the weaker banks without causing a further loss of confidence in them. However, glossing over their problems is not advisable either, as it will send the wrong signal to the markets. In effect, the government has parachuted itself into being an investor/analyst on the country’s banking system, but in so doing, it runs the risk of setting off alarm bells that could unnerve both the equity and commodity markets.
In Other News from Reuters...
* GE and Citibank report earnings on Friday morning; both reports are of great interest to the markets given the considerable speculation about they how their loan portfolios are faring. Moreover, Citi said it was profitable in the first two months of the year, but the consensus earnings estimates carried by the street varies widely. GE, on the other hand, recently hosted a six-hour conference call to guide analysts through the intricacies of its holdings.
* Iraq’s Oil Minister said on Thursday that OPEC expects oil prices to keep on rising during the coming months and that demand for crude this summer will be high. Separately, the Venezuelan energy minister said on Thursday that oil prices have begun stabilizing, with a floor of $45 per barrel.
* US natural gas stocks rose by 21 bcf in the latest week, in line with estimates.
* General Growth Properties, the second-biggest shopping mall owner in the US, had filed for bankruptcy in the largest real estate failure in U.S. history.
* The IMF said the global economy is in an “unusually severe” downturn, and that the recovery is expected to be sluggish. “The current downturn is highly synchronized and associated with a deep financial crisis, a rare combination in the postwar period” the Fund said.
* Total U.S. petroleum product deliveries, excluding exports, fell 2.2% in March vs. the same month last year to 19.289 mbpd, the American Petroleum Institute said. For the first quarter, total petroleum demand fell 700,000 bpd on the year to 19.203 mbpd. About half the decline was due to a fall in distillate fuel use. March gasoline demand increased by 163,000 bpd, or 1.8%, to 9.232 mbpd. Deliveries of distillate fuel oil fell by 439,00 bpd, or 10.6%, to 3.701 mbpd.
* The Baltic Exchange’s main sea freight index rose 4.56% on Thursday to 1,604 points. Prices have now hit their highest level since March 31st.
European North Sea crude oil quotes as reported by Reuters: There were no bids or offers in the window, traders said. Forties last traded on Wednesday at June minus $1.33, equal to dated minus 5 cents.
U.S. gasoline/distillate quotes as reported by Reuters: In Gulf Coast trading, M2 was at 9c under and premium V2 was at a 9.5c premium to the M2. Prompt ULSD was at 1.35c over. In New York Harbor, prompt M2 was at 3c under. On distillates, jet was down 1.5c at 2.25c over, ULSD was down a penny at 6.5c over, low sulfur diesel was down 0.25c at 1.25c under and heating oil was at 2.25c under.
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